A century of misery

A century of misery

April 15th, 2013 in Opinion Free Press

One hundred years ago this year, the states ratified the 16th Amendment allowing the federal government to "have power to lay and collect taxes on incomes." Within months, Americans were filling out the first income tax forms.

In the 1913 tax year, no one who made less than $20,000 -- the equivalent of $458,000 in today's dollars -- paid a dime in income tax. Now Americans earning $458,000 typically fork over $181,368 in federal income taxes.

A century ago, the federal income tax brackets ranged from 1 percent to 6 percent, and that 6 percent top tax rate only applied to those fortunate enough to earn $500,000, or $11.4 million in 2013 dollars. Now, marginal tax rates range all the way up to 39.6 percent and the lowest tax bracket is 10 percent. Some low-income Americans today pay a higher percentage of taxes than the wealthiest taxpayers in 1913.

In today's dollars, the first Tax Day -- the deadline for filing federal income tax returns -- after the implementation of the national income tax brought in $16.6 billion. This year, the income tax will take $2.7 trillion from hard-working Americans.

So why has the income tax grown to take so much money from so many Americans?

Sure, there are more people today than in 1913. But only about three times more. Income tax revenues are 160 times more now than a century ago.

The real reason the income tax is such a burden on Americans is the explosive growth in federal spending. The federal budget in 1913 was about $17 billion in current dollars, or $174 per person. This year, the federal budget is expected to top $3.8 trillion -- an inexcusable $12,050 for every man, woman and child in America.

While no one imagined in 1913 that we would need an Air Force or roads would grow into the expensive necessity they have become, there's still no logical explanation for a 7,000 percent per capita federal spending increase in a century.

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There's also no logical reason why the federal tax code is so complex and complying with tax laws is so frustrating.

The 1913 Form 1040 was four pages long, including a one-page instruction sheet. Last year, the instructions alone for the Form 1040 topped out at 189 pages -- the same length as the Ray Bradbury classic "Fahrenheit 451."

The 1913 income tax form allowed five deductions and one exemption. Today, there are more than 300 exemptions, deductions and credits, the congressional Joint Committee on Taxation found.

According to the National Taxpayers Union, Americans spent 6.38 billion hours doing their taxes last year, or the equivalent of about 3.19 million employees working 40-hour weeks year-round with just two weeks off. Tax preparation alone will cost Americans about $195 billion this year.

Why doesn't the federal government drop all of the tax breaks, loopholes and carve-outs that create such a confounding tax structure? Why not just develop a fairer, flatter tax system?

Because doing so would cut out the millions of dollars in campaign contributions that members of Congress receive every year to create and maintain preferential tax treatment for interest groups.

Since tax preparation is a multi-billion industry, it's also not likely that lawmakers want to battle the backlash from accountants and tax-prep companies that would result if taxes were made simple enough so that everyone could do his or her own.

Tax Day could become a much less dreaded, frustrating experience if Congress would only spend less and stop trading tax breaks for campaign contributions. Unfortunately, that seems unlikely since responsible budgeting and creating a fairer, flatter tax structure would require principles and courage, two qualities that have become rarer in Congress with each passing year since the federal income tax was created a century ago.